EuroBusiness Media (EBM): What are your comments on the overall performance and financial results of VINCI for the full year 2009?
Xavier Huillard (XH): I would characterize 2009 as a relatively successful year for VINCI. We implemented and executed a 'financial crisis' strategy that was designed to preserve and build on the profitability gains we made over the previous years. In terms of financial performance, we made a conscious decision to let our top line reduce so we could maintain our EBIT margin and bottom line. So while full year revenue was off 4.6%, our recurring EBIT margin at the group level actually increased 20 basis points to 10%. Now, how did we do that? First, we continued to improve our cost control and operational efficiency in our concessions activities such that its EBITDA margin improved 160 basis points to 63%. Second, in our contracting business, thanks to a solid backlog, a selective approach to new order intake and tight control of on-going project execution, we were able to achieve an EBIT margin of 4.5% which is only 25bp below 2008. Lastly, we were able to reduce our net debt by 1.7 billion euros. This and lower interest rates allowed us to reduce our net financial charges by 120 million euros. All this combined, we maintained our net profit at 1.6 billion euros, essentially unchanged compared to 2008. I think it is also worth pointing out that we won new, large PPP projects in France, Germany and Slovakia. This combined with the stimulus packages allowed us to enter into 2010 with a backlog at a historical level over 24 billion euros, which is approximately 11 months of contracting activity. In terms of our longer term strategy, our acquisition of Cegelec will create a European leader in the energy and telecom service business. These activities improve our risk profile and produce resilient EBIT margins above 5%. So in summary, in 2009 VINCI was able to limit the negative effects of the financial crisis on its top line, improve the underlying profitability at the group level, reduce net debt, achieve major commercial successes helping to maintain the backlog at record levels, and made strategic moves that should enhance value creation potential for our shareholders both in 2010 and beyond.
EBM: Can you tell us a little more about your French highway concessions business and what you achieved in 2009?
XH: Entering into 2009, we forecast that overall traffic would be down something like minus 2 or 3%. We expected revenue to be flattish but that we would reach our EBITDA targets of 67% for ASF and 69% for Cofiroute. Toward the beginning of the second quarter passenger vehicle traffic started to grow again. It ended the year at +3.2%. Heavy truck traffic finished 2009 as forecast, down 10%. On a combined basis traffic was up 1.2% for the full year while revenue actually grew by 3.1%. We also beat our EBITDA margin targets: at ASF we achieved 67.3% and 72% at Cofiroute. So VINCI's concession business is really extremely resilient. Just think of it: despite a 10% drop of the heavy truck traffic, we had top line growth and increased EBITDA.
EBM: In August of last year, you acquired Cegelec while at the same time strengthening the strategic partnership with Qatari Diar. What is your progress report today on the first tangible effects of this deal, 6 months on?
XH: The entire file was submitted to the anti-trust authorities in Brussels at the end of February, exactly on the 24th of February. Assuming that a favorable opinion is issued sometime at the beginning of April, the transaction could become effective in May or June of this year. After that Cegelec's financial performance would be fully consolidated at the VINCI group level. I would remind you that this transaction is not only a way to become a European leader in the energy and telecom service business. It is also an effective way to develop our partnerships with Qatar.
EBM: What is your outlook regarding the state of the construction cycle? Do you think VINCI is less affected by these types of cycles and if so why?
XH: The industry is much more consolidated that it was 15 years ago when a down cycle meant margin collapse. VINCI is extremely diversified, both in terms of geography as well as in types of know-how. In all of our business segments, we have moved up the value chain. This has created a built-in margin resistance. Here are just a few examples. For example, we have diversified into oil & gas activities which saw revenue grow by 33% and EBIT double in 2009. We have developed our highly technical specialized civil engineering business which makes more than average EBIT margin. We have developed an unparalleled expertise in larger, more complex projects where competition is less and returns are higher. We have an extensive quarry network throughout Europe which provides our road works with logistical and cost advantages. Our Energies business has margins that are very stable. In fact, at 5.3% in 2009 they were identical to those obtained in 2008. So, we have put together a contracting activity which is overall less cyclical. Furthermore, we have taken great pains to educate our field managers to focus on EBIT and cash and not to chase top line.
EBM: Do you still fear that the worst is yet to come?
XH: Well, you know, I obviously don't have a crystal ball. Based on what we've been seeing lately, I would venture that overall we are still looking at a challenging environment in the very near term. Some macroeconomic indicators are starting to turn green but it is difficult to determine if this will be sustained. For example, while things don't look too bad for public and government buildings, we don't expect private office or commercial building to rebound anytime this year. In road works we finally started to see some positive impact from stimulus packages on our activity which we expect to continue into the first half of 2010. But after that visibility is less clear. Of course, we take comfort in the fact that we have a very high backlog and that close to 70% of our activity is assured for 2010. We also have some mega-infrastructure projects, such as high speed rail lines here in France, but these would not start impacting activity levels in a meaningful way until probably late next year. To make it short, I don't expect the environment to deteriorate significantly beyond where we are today and we could see a rebound in 2011.
EBM: And finally, what is your outlook and guidance for 2010? Will you be able to preserve margins in contracting even as revenues continue to decline?
XH: The quick answer to your question is yes, we think we can preserve our margins in 2010 even if revenue continues to decline. Our concessions-construction business model adds a certain amount of non-cyclicality to VINCI's financial performance. To be more specific, we think that based on current economic forecasts, passenger vehicle traffic on our French motorways could grow by about 1%. Heavy truck traffic should grow at a slightly higher rate, say between 1.5 and 2%. Combined with toll rate increases that went into effect at the beginning of February, we think that revenues could increase by around 2.5%. In the contracting activities, excluding any impact from the Cegelec acquisition, we expect revenue to decline somewhere in the order of 4% but with EBIT margins similar to what we achieved in 2009. Of course, if Cegelec's results are fully consolidated beginning in May or June, we should have slight revenue growth at the group level. Overall, we are looking to maintain more or less our full year net income while continuing to manage rigorously our working capital and net debt in order to keep our current BBB+ rating which is really one of our most valuable assets.
EBM: Xavier Huillard, CEO of Vinci, thank you very much.
XH: Thank you Adrian, it was a pleasure.
